Wilson v. Shuler

July 6, 1928. The opinion of the Court was delivered by Appeal from an order refusing to appoint a Receiver of the Farmers' Bank of St. George, S.C. upon the application of the plaintiff, a depositor in that bank.

The facts out of which the controversy has arisen are these:

At some time, presumably within 30 days prior to February 14, 1925 (the precise time does not appear in the transcript), the directors of the Farmers' Bank met and duly passed a resolution, under Section 3981 of the Code, requesting the State Bank Examiner "to take and retain sole possession and control of the property and business of such corporation for not exceeding 30 days." The State Bank Examiner complied with that request.

Within that period of 30 days, upon the verified petition of the bank, and with the consent of the State Bank Examiner, his Honor, Judge Dennis, who was then the presiding Judge of the Circuit, signed an order, dated February 14, 1925, as follows:

"That the Farmers' Bank be and it is hereby authorized to liquidate its affairs, under the sole supervision and control of the State Bank Examiner and subject to the orders of this Court, it is further ordered that the State Bank Examiner, in his discretion, be and he is hereby authorized and empowered to appoint such liquidating agent, or agents, as he deems proper. It is further ordered that this order, and the petition hereto annexed, be filed in the office of the Clerk of the Court of Dorchester County, S.C."

It will be noted that this order not only authorized the liquidation of the affairs of the bank by the corporation, but authorized the State Bank Examiner "to appoint such liquidatingagent or agents as he deems proper." In pursuance of this order the State Bank Examiner appointed D.F. Moorer, Jr., "as his agent, to assist in the liquidation of the bank" (a quotation from the order of his Honor, Judge Shipp, dated December 21, 1927, hereinafter referred to). Accordingly D.F. Moorer. Jr., who had been assistant cashier of the bank, assumed the duties of liquidating agentof the State Bank Examiner, and has been actively engaged in husbanding the assets of the corporation. As is stated in the order of his Honor, Judge Shipp, above referred to:

"Since that date the affairs of the bank have been in charge of the State Bank Examiner, who has been liquidating its affairs with the assistance of Mr. Moorer as his agent."

The defendants, the directors of the bank, in their answer allege:

"That they deny that they have had charge of the liquidation of the said bank as stated in the fifth paragraph of the complaint, but, on the other hand, allege that the liquidation of said bank has been in the hands of D.F. Moorer, Jr., as liquidating agent, under the direction and supervision of the State Bank Examiner of South Carolina, and that he has been faithfully and diligently discharging the duties of such position, and has collected all paper which has been collectible thus far, and is continuing to discharge such duties and making such collections as he is able to do from time to time and as the circumstances permit."

And, further, in reply to the sixth paragraph of the complaint, which alleges:

"That the defendants each and all are guilty of very gross negligence in the collection of the moneys due to said bank and the creditors thereof and are improper parties to conduct the liquidating of the affairs of the said bank."

The defendants allege:

"That they specifically deny each and every allegation contained in the sixth paragraph of the complaint, and allege in reference thereto that no one, save D.F. Moorer, Jr., as liquidating agent of the said bank, under the supervision of the State Bank Examiner, has anything to do with collecting the assets of the said bank and completing its liquidation."

It appears, therefore, by the admissions of the directors, that they have completely abdicated their powers and duties in the matter of the liquidation of the affairs of the bank in favor of D.F. Moorer, Jr., who has been appointed by the Bank Examiner as his agent, to assist him in the process of liquidation.

The plaintiff, a depositor in the bank, then instituted this proceeding for the appointment of a Receiver of the bank, making in his complaint charges of negligence on the part of the directors and maladministration of the affairs of the corporation. The matter was heard by his Honor, Judge Shipp, upon the pleadings and many affidavits, and on December 21, 1927, he filed an order refusing the application for a Receiver. From this order the plaintiff has appealed.

It appears from the showing before us that the "liquidating agent," who, from the order of his Honor, Judge Dennis, and his appointment as such by the Bank Examiner, was justified in the assumption of the validity of his appointment, has administered the affairs of the corporation with commendable intelligence, energy, and honesty, and that the charges of maladministration made in the complaint have not been sustained. We may say, however, that as, in the view which we take of the appeal, his actings and doings are still open for review, the above statement is not intended to foreclose any conclusion that may result from such review.

We deem it necessary to consider only the status of the so-called "liquidating agent," and the consequences of his invalid appointment, if it should be so adjudicated.

It is decided in the case of Browne v. Hammett, 133 S.C. 446;131 S.E., 612, that when an order has been obtained under Section 3981, authorizing the corporation to liquidate its affairs, the directors of the bank become ipso facto liquidating trustees of the banking corporation, with all of the rights, powers and duties conferred by Section 4282, relating to corporations generally. They become vested with the title to all of the assets of the bank; they have the right to the possession of those assets; the right and duty to collect the debts due to the bank; the right to sell and convey the property; the right and duty to pay the debts and distribute the net proceeds; the right to meet and act under the by-laws of the corporation; the right to sue for and recover the debts and property in the name of the corporation. By reason of these necessarily exclusive powers in the directors as liquidating trustees, the corporation itself its completely stripped of every power, right and activity as a corporation. It is not all necessary that the order authorizing liquidation designate the directors as liquidating agents; they become so by operation of law upon the signing of the order virtute officii, and not as agents of the BankExaminer. Having thus become liquidating trustees by virtue of the statute and of their office, it seems clear that they cannot be displaced by an ex parte order and cannot abdicate their power and duty. The order of his Honor, Judge Dennis, purporting to authorize the Bank Examiner "to appoint such liquidating agent or agents as he deems proper," was without legal validity.

As is declared in the Browne v. Hammett case:

"It is true that the liquidation by the directors as trustees is directed to proceed under the ``sole supervision and control of the Examiner.' This by its terms necessarily precludes the idea that the Examiner was expected to conduct the process of liquidation. Neither the right of possession nor the title to the assets of the corporation is vested in him. He is simply a supervisor and director of the process of liquidation. * * * They [the directors] are acting as liquidation trustee virtute officii, and not as agents of theExaminer, though subject to his supervision and control."

As the Bank Examiner has no authority himself to liquidate the affairs of the bank, he cannot, even under an order of Court, delegate a power which he does not possess.

The situation, then, is that the entire affairs of the defunct bank are in the hands of one who has not been legally authorized to administer them, and those who have been constituted by the law the liquidating trustees have abdicated the powers and duties imposed upon them. Moorer, the "liquidating agent" of the Bank Examiner, occupies very much the situation of an executor de son tort, and is liable to a strict accounting of his conduct of the trust which he has assumed.

It is decided in the case of Ex parte Citizens' Bank ofDenmark, 140 S.C. 471; 139 S.E., 135:

"If any depositor, or other creditor, or stockholder considered his interest improperly protected by the directors and the Examiner, or either of them, he had the right to apply to the Court in the original action, under the provisions of Section 4284, whether the bank was solvent or insolvent, for the appointment of a Receiver. His right to take such steps was not limited to the desire of the Examiner, nor to that of the directors; he did not have to wait for the consent of either of them, he did not have to delay until the Examiner took action for his protection."

The judgment of this Court is that the order appealed from be reversed and that the case be remanded for further proceedings consistent herewith.

MR. CHIEF JUSTICE WATTS, and MESSRS. JUSTICES BLEASE, STABLER, and CARTER concur.